Republicans, Wall Street show national debt strain

Boehner tells party rebels to toe line

WASHINGTON - House GOP leaders mounted a furious bid Wednesday to win support for legislation designed to ease the nation's debt crisis, delivering a tongue-lashing to their most conservative lawmakers and casting today's roll call as nothing less than a vote of confidence in their stewardship of the chamber.

House Speaker John Boehner, R-Ohio, began Wednesday by ordering his fellow Republicans to fall in line and continued pushing for support throughout the day. He and his lieutenants repeatedly warned rank-and-file Republicans that Boehner's plan was their only alternative to a Democratic option offered by Senate Majority Leader Harry Reid, D-Nev., or the financial calamity that could be precipitated by a government default.

With investors growing increasingly anxious about whether Washington will make the Tuesday deadline for raising the federal debt ceiling, the stock market tumbled Wednesday, sending the Standard & Poor's 500 stock index down 2 percent, the most in nearly two months.

Republicans claimed momentum was on their on side as Boehner spent Wednesday afternoon huddling with members of the 87-strong class of freshmen that delivered him the gavel after the 2010 midterm elections.

But aides and lawmakers suggested the decisive votes could belong to about two dozen veterans with no strong allegiance to their leadership. Some estimates showed nearly 20 Republicans declaring their intent to oppose the bill.

Republicans received a dose of good news when congressional budget analysts credited Boehner's legislation with $917 billion in spending cuts. Boehner's team had revised the bill Tuesday night after the Congressional Budget Office estimated that the initial draft represented $850 billion in cuts, far less than he had advertised.

Across the Capitol, Reid continued to oppose Boehner's two-step approach to lifting the debt ceiling, which would entail expanding the government's borrowing authority for a few months and then holding another vote early next year on a further increase.

"It'll be altered," Reid told reporters, "if it gets over here."

Reid's own deficit-reduction plan, which calls for raising the debt ceiling enough to cover federal obligations into 2013, faced challenges of its own from the GOP, which objects to the accounting in the bill.

The next move depends on the House vote scheduled for today.

If the Boehner legislation survives that white-knuckle roll call, it will move across to the Senate, where Reid is expected to amend it. Reid held late-afternoon discussions with Senate Minority Leader Mitch McConnell, R-Ky., in their continuing effort to craft a compromise that could clear the Senate by the end of the weekend.

Under this scenario, the amended bill would go back to the House for another vote early next week. But Senate Republicans could balk at any changes in the Boehner bill, forcing President Barack Obama and Senate allies to choose between the legislation or the prospect of default.

If Boehner's bill fails in today's vote, Democrats say, Reid's current proposal would ultimately prevail, perhaps with some revisions designed to win bipartisan support.

"All eyes are on the House," said Sen. Rob Portman, R-Ohio, a friend of Boehner's and a former White House budget director who has been involved in the talks.

Wednesday began with a rowdy 9 a.m. meeting of the House Republican Conference, where Boehner and his leadership team reached a boiling point with the conservative wing of the caucus.

At one point, according to several people in the basement room of the Capitol, Boehner told Republicans to "get your ass in line" because the other options were so distasteful. He won a standing ovation.

Most encouraging for Boehner was that the self-proclaimed "Young Guns" - his deputies who are frequently portrayed as up-and-comers angling to see him fail - fell in line behind the 61-year-old speaker. The Republican leadership no longer sees failure solely as Boehner's undoing but that of his entire team.

After Boehner addressed the group, House Majority Leader Eric Cantor, R-Va., who had negotiated over many of the bill's spending cuts in previous talks with the White House, spoke strongly in favor of the legislation. He was followed by House Budget Committee Chairman Paul Ryan, R-Wis., and House Majority Whip Kevin McCarthy, R-Calif.

Cantor, according to an aide, told members that he was "tired of seeing Republicans on TV taking shots at Republicans" and urged colleagues that "we all need to rally together."

"We all agree that the president doesn't have the right policies for the country," the aide quoted Cantor as saying.

With Democrats unlikely to back Boehner's bill, at least until Republicans provide the majority themselves, Boehner can afford to lose only about two dozen of his party members.

About 30 members spoke up at the gathering. Six said they had previously been leaning against the Boehner plan but were behind it, according the aide, who was not authorized to speak publicly about internal conference meetings. Two members spoke out against the plan.

Afterward, some lawmakers who had been on the fence came out in support.

"I've given this careful consideration, and I've decided this is what's best for our country," said freshman Rep. Scott Rigell, R-Va. "I respect the process the leadership went through."

Other important signs of support came from Rep. Mike Pence, R-Ind., who considered running for president on a purely conservative plank, and Rep. Darrell Issa, R-Calif.

Several Republicans also lashed out at the leaders of the Republican Study Committee, an organization of conservative GOP lawmakers. The group's staff had urged outside conservative organizations to target certain Republican members and pressure them to vote against the bill.

Some conservatives were upset that the bill would fail to slash $1.2 trillion over 10 years, as first promised, even after the rewrite of the initial draft.

With that draft producing only $850 billion in savings, House Republicans cut even more deeply from government-agency budgets, increasing the savings to $915 billion over the next decade, according to the CBO. The revised measure meets Boehner's demand that spending cuts exceed the size of the proposed $900 billion debt-limit increase.

Earlier Wednesday, the CBO also reported that Reid's bill included a smaller cut in the federal deficit than Democrats had advertised. The nonpartisan budget analysts said the Senate proposal to lift the legal limit on the national debt would slice $2.2 trillion from the federal deficit over the next decade, short of its $2.7 trillion target but far more than the cuts in Boehner's plan.

That analysis found that the Reid measure would cut about $840 billion from agency budgets through 2021, roughly the same as the proposal by Boehner.

But Reid also claims significant savings from winding down the wars in Iraq and Afghanistan. The CBO found that those savings account for more than $1.1 trillion, about half of Reid's debt-cut package.

Republicans have dismissed the inclusion of war savings as a budget gimmick.

Potential effects of a failure to lift the debt ceiling

If politicians in Washington fail to lift the government's debt ceiling by the Tuesday deadline, it could spill over into the broad economy, especially if coupled with a credit downgrade or payment default. Some possible impacts:

Investments

Stock-market investors don't like uncertainty, so a prolonged stalemate could trigger selling. This could make investors feel less wealthy and prompt them to spend less, weakening the economy. Gold has risen amid the impasse but could falter if a deal is reached. Bonds could rally in price if investors view them as a safe haven from stock-market gyrations or if they believe the debt impasse could weaken the economy.

Entitlements

People relying on Social Security or other government benefits might see their payments delayed after Tuesday, though few observers think the U.S. government would renege outright on these obligations.

Federal vendors, employees

Companies doing business with the federal government might face payment delays and project cancellations. Federal workers could face furloughs or layoffs.

Economy

If the political stalemate in Washington lingers or if it reduces government spending, economic growth could slow, at least in the short term.

Interest rates

In theory, a downgrade or default that makes the government a less-secure credit bet should push up its borrowing costs. That would increase interest rates on mortgages and other debts pegged to Treasury yields. Yet interest rates could drop if investors see the impasse slowing the economy. Lately, government-bond prices actually have risen, and yields have dropped. Investors have come to view government debt as a safe haven from stress caused, ironically, by government finances.